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Fears over borrowing costs, the UK budget and the election of President Donald Trump have sent stock prices plummeting, reigniting inflation fears and hitting Britain’s property sector.
The six largest listed housebuilders by market capitalization have fallen by about 18% on average since the Labor government’s first Budget on October 30, while real estate investment trusts have fallen by nearly 5%.
Investors, worried about a prolonged period of high interest rates, imposed sanctions on sectors key to the government’s growth plans, wiping billions of dollars off market valuations.
Peel Hunt analyst Clyde Lewis said the sector could see higher inflation as “cost pressures start to creep back in”, citing measures such as employer national insurance contributions and minimum wage hikes. He said that he was being hit by.
He added that “concerns about government borrowing” and a rise in swap rates, which mortgage lenders use to set interest rates due to the UK’s weaker growth outlook, were also hitting the sector.
Concerns over a sustained rise in inflation began ahead of the Budget, with gold yields and swap rates surging ahead of Chancellor Rachel Reeves’ announcement of a £40bn tax rise and around £28bn of borrowing.
A week after the U.S. presidential election, the benchmark 10-year gold yield hit its highest level this year at 4.56%. Although it has fallen slightly since then, it remains at a high level of 4.41%.
Industry concerns were reinforced by Wednesday’s announcement that inflation accelerated to 2.3% in October, up from 1.7% in September and above analysts’ expectations of 2.2%.
Expectations are high that the Bank of England will postpone its next interest rate cut until 2025, and the news has deepened the slump in property sector stocks.
Several property companies in the FTSE 100 index have pointed to risks to their businesses from rising borrowing costs.
“There has been some volatility in terms of the recent budget and the US election… that is a headwind for listed equities,” British Land chief executive Simon Carter said on Wednesday. .
Persimmon, whose share price has fallen by more than a fifth since October, warned this month of “signs of construction cost inflation”.
Part of the blow to homebuilders is that Vistry, by far the worst-performing stock in the sector, has lost more than half its value since last month. The company has issued two profit warnings in recent weeks following an external investigation into undervalued construction costs.
RBC analyst Anthony Codling said the Vistry incident was not so much a result of cost inflation as it was the company’s “miscalculations.” He added that housebuilders were trading at a discount because they had “overreacted to the slight increase in mortgage rates since the Budget”.
Investor confidence has also been shaken by the government’s lack of clarity on how it will achieve its target of building 1.5 million new homes in the UK over five years. The OBR recently predicted that Labor would miss its target of 400,000 homes.
Housing Minister Matthew Pennycook warned this week that meeting the target would be “more difficult than expected” due to the severity of the supply recession.
